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Refinance and Rate Conversions

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A low interest rate environment, coupled with the effects of volatile rates in recent years, has caused Americans who own homes to consider changing the terms of their mortgages. Their existing loans may have carried higher interest rates, which in turn leads to higher monthly payments. This results in a number of Americans looking for a mortgage loan that better suits their situation. A refinance loan or a rate conversion are a couple of options to change the terms of your loan. Let’s break down the difference between a conversion loan and a refinance.

Refinancing a mortgage means paying off an existing loan and replacing it with a new one. There are many reasons why homeowners refinance: to obtain a lower interest rate, to shorten the term of their mortgage or to convert from an adjustable rate mortgage to a fixed mortgage or vice versa. It’s true that getting the mortgage with a lower interest rate is one of the best reasons to refinance. You could also consider refinancing to shorten the terms of your mortgage and pay significantly less in interest payments. Fewer interest payments means you’re paying off the principle of the loan quicker and getting out of debt faster.

Some people use what is called a cashout refinance. This allows them to access the equity they own in the home, and essentially reset the clock on their mortgage loan. Tapping into the equity or consolidating debt are other reasons to refinance. Homeowners often access the equity in their homes to cover major expenses, such as the cost of home remodeling or a child’s college education. These homeowners may justify the refinance by the fact that remodeling adds value to the home or that the interest rate on a mortgage loan is less than the rate on money borrowed from another source.

Many homeowners refinance to consolidate their debt. At face value, replacing high interest debt with a low interest mortgage is a good idea. Unfortunately, refinancing does not bring automatic financial prudence. Take this step only if you’re convinced you can resist the temptation to spend once the refinance relieves you from the debt. Before you refinance, take a careful look at your financial situation and ask yourself, how long do I plan to continue living in the house? How much money will I save by refinancing?

Now, a rate conversion is dependent on the customer’s standing with us at the time of the request, and could lower your interest rate without you having to go through the entire loan process. This allows our customers to convert their loan rate to a lower interest rate if the market drops. Customers must have made 12 consecutive payments on time between each conversion request. The cost is $500. There’s no financial analysis or change in terms with a rate conversion. They just convert your rate if it is better by at least a quarter percentage.

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Looking to Refinance?

If you’re considering refinancing your mortgage for more options or flexibility, let Texas Farm Credit’s helpful lending experts walk you through our rate and term refinancing or cash-out refinancing.

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Refinancing can be a great financial move if it reduces your mortgage payment, shortens the term of your loan or helps you build equity more quickly, and a rate conversion can be an easy way to lower your interest rate. When used carefully, refinances and rate conversions can be a valuable tool for bringing debt under control.

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About the AuthorJennifer Huffine

Jennifer Huffine was a staple in TFC Mortgage for eight years, upholding a seamless experience for our customers. She graduated from the University of Texas at Tyler with a bachelor’s degree in Business and started her career in Property Management before joining the TFC Mortgage Team. A Tyler, TX native, Jennifer and her husband have 2 sons and enjoys spending time with family and friends.

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